Turkey increases regulated power prices

Turkish energy regulator EPDK raised power tariffs for households, businesses and industrial users, but the increase will not provide sufficient margins for alternative suppliers to sell power to most users as tariffs hold below the forward market.

Industrial tariffs rose by 15pc to 264 Turkish lira/MWh ($54/MWh) and business tariffs increased by 16pc to TL285/MWh. Household tariffs increased by 9pc to TL267/MWh.

The hikes will not provide a big enough margin for independent suppliers, with higher fuel prices and the weaker lira supporting forward prices. A rising Yek fee — driven by higher solar capacity — is also squeezing margins. Suppliers with eligible users in their portfolio pay the renewable Yek fee each month and take this levy into account when calculating the total cost of selling power. EPDK expects the Yek fee to average TL46.73/MWh in October-December, while the average trading price of the power contract for the same period was at TL233.44/MWh. These prices take the total cost of selling power to consumers to TL280.17/MWh, leaving suppliers with no profit margin from sales to industrial and household consumers. Firms that secured power for the front quarter at around TL230/MWh might find some margins from sales to business users. But these firms might look for profits in the forward market after yesterday's rally, instead of taking on new customers, which incurs other operational costs.

Limited margins for business users might not boost traded volumes on the over-the-counter (OTC) power market. For liquidity to pick up, industrial users, who use more than 50 GWh/yr — accounting for around 25pc of total demand — will need to switch to fixed-price contracts from spot-indexed deals.

EPDK introduced new regulation to make industrial users switch to alternative suppliers using a spot-indexed tariff formula. Most opted for spot-indexed deals, despite risks from spot volatility and tariff uncertainty for gas-fired units.

The 50pc rise in regulated gas prices for power plants will drive day-ahead prices higher and increase costs for industrial users. The day-ahead contract delivered at an average of TL267.86/MWh on 1-2 August, compared with July's average of TL208.13/MWh. Gas-fired generation covered 37pc of total demand in July, accounting for 14.1GW.

Forward prices gained after yesterday's gas price hike, with the front quarter rising by TL20/MWh over the course of the day to close at TL255/MWh.